Martin Wolf stated something obvious in yesterday's FT. I've made the same point, but he made it in his own direct style that is now so effective:
Instead of such action, we get the gimmicks characteristic of all chancellors under stress. I am strongly in favour of additional spending on infrastructure. But it must be evident, even to the Treasury, that if the government borrows from pension funds to fund infrastructure, the impact on national balance sheets will be exactly the same as if the latter fund the same infrastructure directly, as is now proposed — except that the infrastructure will cost more. This is another in a line of wheezes to get round self-inflicted constraints, themselves partly reflecting ludicrous public sector accounting practices.
What we need - as I've argued for almost a decade -are pension funds set up to fund infrastructure spending in the UK. I put the case in People's Pensions in 2003 and I don't think it's changed since:
People's Pension will be backed by People's Pension Funds. These entirely new funds will be created to provide a way in which pension contributions can be invested in the building of new public infrastructure projects such as:
- schools and universities
- hospitals and other health facilities
- transport systems (including railways, trams and bus networks)
- social housing
- sustainable energy systems
It is not possible for pension contributions to be specifically directed in this way at present. Instead the £750 billion in UK pensions funds at present are invested in (with the proportion in each shown in brackets):
1. shares issued by private companies (71%)
2. commercial land and buildings (6%)
3. cash and bank accounts (3%)
4. UK government bonds (17%)
5. other bonds (3%)
In 1962 51% of total pension fund assets were invested in UK government bonds. In 1993 it was just 7%. The figures for 2002 quoted above reflect a move out of equities as a result of falling share prices. Even so the amount of cash in pension funds used to help public investment in the UK remains very low. This is because:
- government bonds are an investment option usually only selected by pension fund managers for those approaching retirement
- those with a choice as to where their funds are invested are usually advised against investing in government bonds on the grounds that they are “too safe to provide a useful return”
- people are normally guided towards share based investments. The degree of irrationality in this is detailed below.
The creation of People's Pension Funds would change this to create an investment model that is:
- sustainable
- secure
- rational, and
- desirable
As a result it would benefit the pension fund, the pensioner and society at large. It will also, from a national perspective, re-balance the availability of investment funds. It has been illogical that the public sector, which generates over 40% of gross domestic product, has not had direct access to pension funds, the largest source of savings cash in the UK.
But I didn't argue then, and along with Wolf I don't argue now for such funds to invest directly in the infrastructure and then let it to the government. I argued that it was up to the government to manage and run such projects and issue a bond to the pension fund to represent its investment.
And as I (and my co-authors of the time) pointed out:
What a People's Pension Fund will never do is undertake the work of the sponsoring organisation. So, if a People's Pension Fund was sponsored by an NHS trust to build hospitals in its area then that is what the People's Pension Fund would do, and the contributors to the Fund would have the satisfaction of knowing that they had helped build that facility. It would not, however:
1. provide medical services
2. employ medical staff
3. own the supply of the medical services
All these tasks would remain firmly with the NHS. There is no element of privatisation in the proposal that is being made. In fact, if anything the reverse is true. What a People's Pension Fund would do is demonstrate the support the public have for state provision of public services by investing in that process. And it will involve people in that process as each People's Pension Fund will be managed democratically by its members on a mutual, not for profit basis.
I'd tweak a few bits now, but not by much. And I'd also suggest that the funds should be regional e.g a fund for East Anglia, or the North West, and so on, or maybe sector linked e.g. health or education, but the point remains: this is a cheap source of funds for the government.
But it's also something much more than that. The crisis in pensions is not in the state sector.The crisis is in the private sector, and People's Pension Funds are a way to overcome that crisis too. It's an issue I'll turn to in my next blog.
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Dear Richard Murphy, I wonder if you have followed the fox/werrity scandal, the scandal reveals who our politicians really serve, The main stream media has covered up the damaging details, that Liam Fox was meeting with zionists and mossad agents preparing for war with Iran.
David Cameron when he was 24 years old helped Israel get 6 nuclear weapons from South Africa. Also mysteriously our largest banks have been plundered and those running those banks have been promoted or kept their lucrative positions. RBS went from net assets of 68 billion to negative assets of 1.7 trillion, Where did that money go?
“David Cameron when he was 24 years old helped Israel get 6 nuclear weapons from South Africa.”
My apologies to Richard for dragging this off-topic, but the above is bullshit, for quite a few reasons
1. David Cameron turned 24 in 1990, the year *after* South Africa abandoned development of their nuclear programme.
2. When South Africa gave up on nukes, they had only built 6 bombs in total. The IAEA subsequently inspected all 6 devices and confirmed that they were no longer useable.
3. The South African bombs were simple nuclear devices with a kinetic ignition system (like the “Little Boy” bomb designed by Robert Oppenheimer). Israel, which went nuclear in the late 60s, already had state of the art nuclear (and probably thermonuclear) weapons, much better than anything South Africa had to offer (the material leaked by Mordechai Vanunu in 1986 proves this). There’s no logical reason why Israel would want South African nukes.
Conspiracy theory nonsense.
Happy to have the rebuttal
I did winder whether to push the ‘delete’ button on that one
Maybe I should have….
But you’ve done better than that
Is this substantially any different from – the government takes money off its taxpaying citizens now, spends the money on infrastructure and promises a pension at retirement age. Basically national insurance / state pension?
Yes – it is hypothecated
You can see they’re actually delivering on the promise
It’s ring fenced
So you believe it
And believing is crucial
Richard, things are getting much worse day by day and looks like start of a credit crunch, similar if not worse then 2008.
These shocks to the system will sap confidence in people and putting pension money in equity will be soon no go. So the time is right for pension funds to be invested directly for projects which the funder can see and touch as doing good plus saving money in not being ripped off by greedy operators.
Time is right to change the way we fund our society because the banks and governments are broke (they just do not care beyond their 5 year term )
Why does not the government cut out the middle man ie. banks and give cheap credit directly to the public, Each citizen could get credit of say £20k at 0.5% int rate, this would boost hugely the economy, The banks have not been a good conduit transmitting liquidity to the country,
Because we’d consume it and export the entire benefit
Let’s be clear: this would essentially amount to the nationalisation of all private pension funds. Countries that have done this in the past have invariably been in financial crisis and scarcely go by the name of democracies.
How can I be sure that my future pension will be proportional to my contributions? If I pay in substantially more than someone else, will I get substantially more than someone who paid in far less?
How does one get a return from a school or hospital, or roads? The only way would be to charge for them.
Well, I will be damned if I’m forced to hand over my pension contributions to the government. I’ll probably move it abroad.
And what is Wolf talking about when he says the public sector “generates” over 40% of GDP? It may well consume more than 40% of GDP, but that is not the same as “generating” it.
It does not mean that
It provides a secure, viable, option for those who want it
What is wrong with that?
And how does a hospital pay – it’s called rent!
As for generating 40% – really don’t be silly. You mean education, health, the police, fire service, and so much more do not generate wealth
If you believe that you have lost touch with reality
Public services do increase GDP, don’t they? Public services also effectively circulate money into the economy that consumers and business do not have to borrow.
You are right
@ Simon McCullum: Nowhere is it suggested that joining such a scheme would be compulsory, so that part of your response makes no sense. The fact is that private schemes are very poor value for money and that people like me have no sensible option to make provision for a pension. I will not pay into a private scheme to enrich fund managers with no certainty of the outcome: I am left with no option at all. I thought that those who distrust government were the same people who believe in choice: well I would like a choice such as this proposal. Why do you wish to deny it to me?